Credit choice is a crucial decision

CREDIT cards versus personal loans: The battle over which one is best for your small borrowings is a tight one.

Personal loans can force consumers to better control their spending, but credit cards can be cheaper if used wisely, financial experts say.

Deciding which one is best for you requires an understanding of the pros and cons, says Kirsty Lamont from comparison website Mozo.

"Personal loans are less risky from a bank's point of view because the repayments are fixed," she says.

"You need to weigh up your spending habits and try to choose products with the lowest rates.

"But if you are going for a credit card, you should look for one that has an interest rate below 12 per cent."

Research by Mozo found that, for a consumer who borrows $5000 and makes monthly repayments of $450, the cheapest option would be to use a credit card with the introductory offer of 0 per cent on purchases in the first six months, before reverting to a low ongoing rate.

Mozo found the average costs associated with a $5000 personal loan compared with a credit card are quite similar.

Choosing the best option for you will depend heavily on your spending habits and ability to pay off debt.

Suncorp's executive manager of personal lending, Tony Meredith, says personal loans are good if you don't have funds readily available to make a purchase.

"Generally the interest rate is cheaper than a credit card," he says.

"It's also a structured repayment plan and it forces you to commit to paying it off over between, say, one and seven years depending on the term."

He says the debt on credit cards can quickly spiral upwards and attract hefty interest costs because you only have to make minimum repayments each month.

Meredith says personal loans can often be obtained faster than a credit card - usually within the same day.